Is U.S. Well Services, Inc. (USWS) Going To Burn These Hedge Funds ?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards U.S. Well Services, Inc. (NASDAQ:USWS) to find out whether it was one of their high conviction long-term ideas.

Is U.S. Well Services, Inc. (NASDAQ:USWS) the right pick for your portfolio? Money managers are becoming more confident. The number of bullish hedge fund positions advanced by 2 recently. Our calculations also showed that USWS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). USWS was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with USWS positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Curtis Schenker of Scoggin

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the fresh hedge fund action regarding U.S. Well Services, Inc. (NASDAQ:USWS).

Hedge fund activity in U.S. Well Services, Inc. (NASDAQ:USWS)

Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in USWS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Encompass Capital Advisors held the most valuable stake in U.S. Well Services, Inc. (NASDAQ:USWS), which was worth $4.2 million at the end of the third quarter. On the second spot was Scoggin which amassed $2.5 million worth of shares. Angelo Gordon & Co, Paloma Partners, and Alyeska Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Scoggin allocated the biggest weight to U.S. Well Services, Inc. (NASDAQ:USWS), around 0.57% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to USWS.

As aggregate interest increased, key money managers have jumped into U.S. Well Services, Inc. (NASDAQ:USWS) headfirst. Scoggin, managed by Curtis Schenker and Craig Effron, assembled the biggest position in U.S. Well Services, Inc. (NASDAQ:USWS). Scoggin had $0.2 million invested in the company at the end of the quarter. Bart Baum’s Ionic Capital Management also initiated a $0.2 million position during the quarter. The only other fund with a brand new USWS position is Renaissance Technologies.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as U.S. Well Services, Inc. (NASDAQ:USWS) but similarly valued. These stocks are The GDL Fund (NYSE:GDL), First Savings Financial Group, Inc. (NASDAQ:FSFG), LSB Industries, Inc. (NYSE:LXU), and Points International Ltd (NASDAQ:PCOM). This group of stocks’ market values are closest to USWS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GDL 3 5578 0
FSFG 4 6140 1
LXU 5 10516 -1
PCOM 6 11297 0
Average 4.5 8383 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $12 million in USWS’s case. Points International Ltd (NASDAQ:PCOM) is the most popular stock in this table. On the other hand The GDL Fund (NYSE:GDL) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks U.S. Well Services, Inc. (NASDAQ:USWS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately USWS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on USWS were disappointed as the stock returned -26.9% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.